Quantifying the costs of cycle counting in a two-echelon supply chain with multiple items

Abstract

Inventory record errors within a supply chain can lead to problems that cause low customer satisfaction and high operational costs. This paper presents a simulation model of a two-echelon inventory system consisting of a retailer, a distribution center, and a supplier that includes multiple item types and the use of cycle counting as the corrective action. An extensive set of cycle-counting configurations were examined while observing the trade-off between fill rates, accuracy, and system costs in order to investigate the best possible configuration of cycle counting for two set of experiments that examine high-demand–low-cost and low-demand–high-cost items. The results indicate that the correct application of cycle counting will increase record accuracy and provide significant amount of savings for the entire supply chain.